Put traders hone in on March 2 put after MTG discloses results

MGIC Investment Corp. (NYSE:MTG – 2.77) saw a flurry of bearish activity Monday, with puts trading at about 19 times their normal levels as more than 16,000 puts crossed the tape. Investors were perhaps betting on a sour earnings report later this month from the mortgage/mortgage insurance provider.

The most active option was the March 2 put, which saw more than 14,000 contracts trade at the volume-average weighted price (VWAP) of $0.12. Most of these contracts changed hands at the ask price, implied volatility jumped by more than 30 percentage points, and volume vastly exceeded open interest. In addition, open interest in this put jumped by nearly 14,000 overnight -- indicating that most of the contracts traded yesterday were bought to open. For these back-month options to break even, MTG shares need to close at $1.88 (strike price minus VWAP) on the expiration date of March 15. This is a whopping 32% south of current levels. If MTG is trading north of the strike price when the options expire, however, all the traders would lose is the premium paid.

The bears have already been out for MTG for awhile. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) indicates the equity's 10-day put/call volume ratio of 0.65 is higher than 90% of the past year's readings, meaning shorter-term traders have rarely been so put-heavy.

The company announced Friday it would release its earnings on Feb. 28, while also releasing a summary of its monthly operating statistics for January. Analysts are predicting a loss of $1.54 per share, and the company has run a loss in each of the last four quarters, and missed estimates in the last three quarters. None of the five analysts covering MTG have a "buy" or better rating on the stock -- there are three "holds" and two "strong sells." The stock has outperformed the S&P 500 Index (SPX) by 55% over the last three months, however, and however, and has bounced back more than 300% since an earnings disappointment took the stock to an annual low of $0.66 in early August. Nevertheless, MTG is still down more than 37% year-over-year, and yesterday's bearish traders may be hoping for a repeat of August's earnings-related plunge.